Hospitals, physicians, medical equipment suppliers and other providers also filed 85 percent of the cases decided by the administrative law judges in fiscal 2010. Some providers get plenty of practice, with 96 “frequent filers” responsible for one-third of the 40,682 appeals submitted to the judges, the IG found.

The report noted that some providers routinely appeal every denial “because the cost is nominal and a favorable decision is likely.”

Medicare beneficiaries and providers can challenge the denial of a claim in several appeals stages, but the first two are decided by contractors working for Medicare who base their opinions on case files. In the third step, which is the focus of the report, appellants have a hearing before a judge, testimony can be provided, witnesses can be cross-examined, and new evidence can be introduced. The judges are lawyers in the Office of Medicare Hearings and Appeals, an independent agency within HHS.

In order to keep providers from overwhelming the system and to discourage multiple appeals from the same provider, the report recommends that Medicare officials charge providers – but not patients – a filing fee set in relation to the dollar amount in dispute.

Another issue cited in the report was the dramatic difference in favorable decisions by the judges and the Medicare contractors who handle the second level of appeals. The judges reversed the lower level denials 56 percent of the time for all appellants, including 61 percent of the time for providers and 28 percent for beneficiaries.

When investigators looked at the appeals by type of claim, they found that the judges reversed 72 percent of denials involving payment for hospital care, under Medicare’s Part A hospitalization program.

Beneficiaries may win less often because their appeals usually involve coverage decisions by their private drug or Medicare Advantage insurance plans. Those policies have contracts describing what is covered which beneficiaries agree to when they sign up. As result, the report notes that judges may have less discretion to overturn those denials.

Beneficiaries may also file a smaller portion of appeals, because their providers are most often responsible for unpaid bills when Medicare determines a service or treatment is not covered.

The judges frequently disagreed with lower decisions because they had a more flexible interpretation of some ambiguous Medicare policies and because the hearings allow different information to be presented, among other reasons described by investigators.

Investigators recommended that Medicare officials and the Office of Medicare and Hearing Appeals clarify policies that are often misinterpreted, move more quickly to a fully electronic records system, and establish a quality assurance process to review judges’ decisions. They also suggested that if providers file appeals while they are also under investigation for submitting fraudulent claims, the appeal process should be postponed, if necessary, until the fraud investigation is concluded.

The report included a written response from Nancy Griswold, chief administrative law judge at the Office of Medicare Hearings and Appeals, who said she agreed with many of the recommendations and indicated that some are already being addressed.